The Latest Smart Budgeting Tips That You Should Embrace Right Away
Are you always running out of money before your next payday?
If it’s any consolation, you’re not alone. About 1 in 3 Americans, including those earning over $100,000 a year, run out of money before their next paycheck hits the account.
Being broke is never an ideal situation, especially when you’ve living expenses to meet. And certainly, the COVID-19 pandemic, with its harsh economic consequences, has made the situation worse.
The good news is you can get a handle on your personal finances and ensure your money goes further. The answer is smart budgeting. For those of you earning a substantial salary, it’s best to deal with Avior Wealth Management Firm or someone similar. Let professionals manage your wealth so you can focus on your health, family and career without worrying about the future.
In this article, we’re sharing budgeting tips that will help you manage your personal finances more prudently.
Let’s get into it!
Embrace the Importance of Having a Budget
Did you know about 55 percent of Americans don’t use a budget to manage their money? It’s no wonder so many people are running out of money and sinking deeper in debt.
It’s no secret that budgeting can help you stay on top of your personal finances. But for budgeting to work for you, you have to embrace that indeed a budget is a crucial money management tool.
Of course, it’s easy to assume that you have the capability to manage your money prudently without needing a written guideline. Plus, you might see drawing a budget as a time-consuming, boring task.
There’s no room for such thoughts when you want to have a budget. You have to believe that budgeting works; otherwise, you’ll draw a budget that you won’t stick to.
Track Your Spending
Before you create a budget, you need to have a clear picture of what you’re earning and what you’re spending. If you’re employed, tracking income isn’t a big deal. You have pay stubs that show your income after taxes. If you’re self-employed, however, you have to stay on top of your income.
To track your finances, write everything down. Although there are digital tools you can use to monitor your expenses, their level of accuracy is debatable, especially because they might not capture expenses paid for in cash or from an account that they aren’t authorized to monitor. Record every expense, down to that $1 coffee.
Do this for about 3 months. This is long enough a period to give you an accurate picture of your spending. The difference from one month to the next should be big.
Now that you know how much you’re spending every month, compare it to your monthly income. As a rule of thumb, you shouldn’t be spending more than 80 percent of your income on expenses (both primary and secondary).
If you’re spending 80 percent or less, that’s a good start. If you’re spending more, it’s time to act.
Since you already have a list of your expenses, categorize them into two groups: primary expenses and secondary expenses.
Personal finance experts agree that you shouldn’t be spending more than 50 percent on primary expenses like housing and food. Secondary expenses, like leisure and entertainment, shouldn’t take up more than 30 percent.
Are your primary and secondary expenditures adhering to this rule?
The 50:30:20 rule works for most people and is indeed practical.
However, there’s no reason you can’t do even better. It’s possible to do 40:30:30 or 50:20:30. This is why creating money goals is part of smart budgeting.
A good goal is to increase your savings. 20 percent of your income should go to savings, but you shouldn’t settle for the bare minimum. Saving more money is key to securing financial freedom early in life. So, you can push yourself to save 30 percent of your income.
With this goal, you have to make some adjustments to your expenditure. Find opportunities to cut back on the money you’re spending on primary and/or secondary expenses.
For example, evaluate your housing costs. If you’re a tenant paying $2,000 rent every month, could you consider moving to a cheaper house? It could be in a less-desirable part of town, but shaving even $100 off your current expenses can be what it takes to avoid running out of money before payday.
What you do with the newly-freed income matters. Saving all of it is a smart move, but you can also consider other options, such as putting it in an investment account.
Ensure you’re setting smart financial goals. They should be achievable and measurable.
Personal finance technology has come a long way, from the time Excel was the go-to budgeting tool to today’s AI-powered personal finance software.
No technology is perfect, but the right financial tools can help you better manage your money – if you let them! Letting them means giving them smartphone permissions to collect your financial data, analyze it, and develop budgets for you.
Especially if you’re a busy person who barely has a second to think about budgeting, these tools can be of great help. Just be sure to implement the recommendations they give you.
Smart Budgeting Is the Key to Unlocking Financial Freedom
Achieving financial freedom is top on the wish list of the vast majority of people in the United States. Yet, most of these people aren’t interested in budgeting. Don’t be like these people!
With smart budgeting, you’ll not only gain better control of your personal finances but also start taking great strides toward financial freedom.
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